Types of Businesses (4)

Question 1

What are sole traders?

Answer 1

A sole trader is a business owned by only one person.

Question 2

Advantages of being a sole trader?

Answer 2

• Few legal regulations
• Owner makes all the decisions; has complete control
• Owner can choose when to work, prices, employees, etc.
• Incentive to work hard(Making profits)
• No info need be shared(except to tax office)
• Close contact with customers

Question 3

Disadvantages of being a sole trader?

Answer 3

• No one to help make decisions
• Unlimited liability
• Few sources of capital; banks reluctant to loan to small businesses
• No one to replace the owner in absences(e.g. illness, vacations)

Question 4

What is a partnership?

Answer 4

A business in which 2-20 people agree to operate a business together.

Question 5

Advantages of a partnership?

Answer 5

• More sources of capital
• Assistance in making decisions; shared responsibilities
• Profits and losses shared by all partners, so all need to work hard

Question 6

Disadvantages of partnerships?

Answer 6

• Unlimited liability
• Unincorporated business(not a desperate entity from the owners)
• Disagreements b/w partners
• If one is inefficient, others are affected
• Only enough capital 20 people could raise

Question 7

What are unincorporated businesses?

Answer 7

Businesses which don’t have a separate legal identity from the owners, e.g. sole traders & partnerships

Question 8

What are incorporated businesses?

Answer 8

Businesses that have separate legal status from the owners, e.g. Private and Public Limited companies

Question 9

Advantages of private limited companies?

Answer 9

• Shares can be sold to many people(friends and relatives, not the public), so more capital
• Limited liability
• Owners can control the business as long as they don’t sell a majority of shares to acquaintances

Question 10

Disadvantages of private limited companies

Answer 10

• Lots of legal matters
• Articles of Association(rules, procedures and duties)
• Memorandum of Association(info about directors & the company, objectives and shares belonging to directors)
• To sell shares to others, all shareholders have to give permission
• Shares can’t be sold to public, so lots of capital can’t be raised

Question 11

What are public limited companies?

Answer 11

Owned by private individuals; shares can be sold to the general public

Question 12

Advantages of public limited companies?

Answer 12

• Very large amounts of capital raised
• Limited liability
• Incorporated business
• No restrictions on buying, selling or transferring shares
• Lots of prestige, greater chances of banks lending

Question 13

Disadvantages of public limited companies?

Answer 13

• Loads of complicated legal procedures
• Lots of regulations for the good of the shareholders(e.g. publishing accounts)
• Too much growth=difficult to manage
• Selling shares is expensive
• Owners may lose control as others may buy majority of the shares

Question 14

What is a joint venture?

Answer 14

2+ businesses start a project together, sharing costs and profits

Question 15

What is a franchise?

Answer 15

A business based on use of brand name, logos of a existing successful business. The franchisee buys a license from the business(franchisor)

Question 16

Why do businesses set objectives?(ik wrong topic)

Answer 16

• Clear goal to work towards
• Easier to make decisions
• Unite the business towards achieving the goal
• Can compare results and see whether they’ve been successful